WashACE Blog

Massachusetts Business Survey: Things Don't Look Promising

According to a recently-released Associated Industries of Massachusetts survey, Bay State employers don't think much of the business climate there. The AIM survey matches the picture painted by the state's tech leaders.

Here's how the AIM press release summarizes findings.

When asked to rank specific business concerns that impact the competitiveness of their respective operations, the cost of health care, fuel, electricity, employment costs (unemployment insurance/ workers compensation), and state taxes all   ranked as the areas of most concern.  Issues such as costs of HR, labor laws and environmental regulations along with the quality of elementary and secondary education, transportation, workforce availability, local taxes, housing costs and global trade issues were also significant in the rankings.

I'm not singling Massachusetts out for special attention, although by any measure it's a state that Washington business leaders benchmark against for its strong tech sector and cluster of top academic institutions. Rather, I think it's important to recognize how business leaders across the country assess their competitive challenges. Health care, energy, employment and state taxes would surely top the list of a similar survey here.

The 2009 legislative session will be the most critical test of our commitment to a competitive economy in more than a decade. And the stakes are higher than ever before, with the increased mobility of labor and capital.

Not a Lot of Competition in Legislative Races Across the Country

Washington voters, with their avowed distaste for partisan politics, adopted the "top two" primary scheme to weaken party control over the nomination process. It resulted in a handful of races this year pitting two members of one party against each other.

I'll not weigh in on that here. But I found this report from the Council of State Governments interesting.

Despite more than 5,800 legislative seats appearing on statewide ballots, only 39 percent of those races will feature both a Democratic and Republican contender. The remaining 61 percent are races that are either uncontested or have only one major party candidate squaring off against one or more third party candidates.

Does that seem like a good thing to you?

What Does the Strike Mean for Boeing's Future in Washington?

After the initial feelgood of a settlement, it's time for sober reflection on where Boeing goes from here. Take that literally ... because Boeing's going may be something we're confronted with unless things in Washington turn around quickly. The speculation is widespread.

On the front page of today's Seattle PI, the headline sets the stage: "Boeing suppliers celebrate deal - but analysts have different take."

Suppliers to The Boeing Co. rejoiced at the possible settlement of the Machinists' strike, in its 53rd day Tuesday, but several aircraft industry analysts said they view the strike more grimly.

They warned that, whether or not it ends soon, the strike will help drive Boeing's assembly plants out of Washington to states where unions have less power.

Ten years?

... the Machinists may have fatally damaged the employer-union relationship, said Richard Aboulafia, an aviation analyst with Teal Group Corp.

"This strike was the straw that broke the camel's back, and I think Boeing is out of here," he said. "Given its history of labor relations and the attraction of a right-to-work state, the likelihood of them moving out of state is 90, 95 percent in the next 10 years."

He said states where workers can't be required to join unions, particularly in the South, are making "tremendous efforts" to lure aerospace companies such as Boeing.

"They're going to provide the same tax breaks and incentives as Washington state and a much better labor environment," Aboulafia said. Modern aircraft manufacturing uses fewer people and lighter equipment, making it more portable, he said.

We cited Aboulafia in yesterday's post. Here's a copy of his October Letter for The Teal Group (my highlighting added). Compelling as I find his analysis to be, reporters seem have had little difficulty finding machinists' union members who dislike the settlement and sound prepared to dig in for longer. Granted, it's unlikely that the contract will be rejected, but quotes like these  underscore the ongoing tension.

From The News Tribune.

?This contract is not as good as the one that we rejected in September,�� said Ruth Edwards, who picketed outside Boeing?s Auburn parts plant Tuesday morning.

?For all the time we?ve spent out here, we should be getting something much better,�� said the 24-year Boeing veteran.?It looks like the union leadership has just thrown us under the bus again.��

Similar comments in the Herald of Everett.

... Tuesday afternoon, after reading the union's summary of the contract, many Machinists were inclined to reject the offer. That includes Rebecca Groves, her sister-in-law Jodi and her mother Pam, all materials handlers at Boeing. While the offer protects their jobs for the next four years, Pam Groves was worried about the future.

"I'd love to be back to work next week, but I just don't know yet," she said.

Even those inclined to vote for the contract sound dissatisfied. From The Seattle Times.

Joe Albanese, 44, who works as a parts deliverer in Everett, said he'll vote for the deal, if there are no surprises in the details, because the contract holds the line on parts outsourcing that could affect him directly.

"They want to get rid of us," he said. "At least we've stopped them for four years."

TNT editorial writers also wonder whether the game was worth the candle, and go on to consider the consequences. 

But the frequency of these strikes? they?ve been recurring roughly every five years? bodes ill for the survival of aerospace manufacturing in this state.

We hope the leaders of both the Machinists and Boeing are approaching these these negotiations with the future in mind.

... Boeing, more than most companies, operates in a ruthlessly competitive global marketplace.

And the company has options. The strike may be over ... the competition continues.

10th Anniversary of Minimum Wage Initiative

I'd have missed this if I hadn't seen Don Brunell's post on Olympia Business Watch. Yes, it's only been ten years since voters adopted Initiative 688.

As Don writes, passing the initiative did not end the push to steadily raise the wage floor.

Today, politicians are blending minimum wage into a living wage.  That may prove to be counterproductive and actually decrease job opportunities during these economic times especially. While everyone wants to be paid more, the question which needs to be answered:  "Is continually increasing the minimum wage actually reducing jobs?"

Certainly, particularly with younger workers, a higher minimum wage is associated with higher unemployment, as this Heritage Foundation web memo finds.

Why has the economic slowdown hurt teenage workers particularly hard? Economic theory predicts that the recent increases in the minimum wage disproportionately affect teen employment.

Minimum wage jobs are entry level positions for workers with little experience in the labor market, such as teenagers. Most minimum wage workers are between the ages of 16 and 24. Relatively, minimum wage workers are secondary earners in their families?the average family income of a minimum wage worker is over $50,000 a year. As they gain experience, such workers become more productive and earn a raise. Two-thirds of minimum wage workers earn a raise within a year.

Raising the minimum wage makes it more expensive to hire these unskilled workers. Employers will not pay a worker more than the value they add to the company...

Makes sense, doesn't it? Something to think about as the tenth anniversary approaches.

Boeing Strike Agreement Reached

Appropriately topping the news today is the tentative agreement between the Machinists' union and Boeing Company. Here are some links: Seattle Times, Seattle PI, The News Tribune, Herald of Everett, and Puget Sound Business Journal.

The agreement most likely will bring to an end the 53 day strike. Like all strikes, this one has had costly consequences for the company and many striking workers. Both sides express support for the new contract and expect union members to ratify it in the coming week.

The PI's James Wallace links to the IAM site for contract details.

The four-year deal looks pretty good for the union. John Gillie summarizes neatly for The News Tribune.

The union reportedly got more of nearly everything in return for a longer period of labor peace, four years, instead of the three the union had originally considered.

Among the reported concessions, the company withdrew what the union had called?takeaways�� in the medical plan that in the original proposal would have added higher co-pays and fees to some of the medical plans it offers. The company also reportedly agreed to increase the pension formula from the $80 per year of service proposed in its September offer to $81 and then to $83 in the last year of the deal.

The previous proposal included a 11 percent pay increase over three years. The new deal reportedly includes a 15 percent increase over four years, but gives a higher increase, 5 percent, in the first year of the deal. In addition, the new agreement includes an enhanced?signing bonus�� of $5,000 for the first year and two $1,500 payments in subsequent years.

Here's Scott Carson's comment.

"This is an outstanding offer that rewards employees for their contributions to our success while preserving our ability to compete," Scott Carson, president and CEO of Boeing Commercial Airplanes, said in a statement. "We recognize the hardship a strike creates for everyone -- our customers, suppliers, employees, community and our company -- and we look forward to having our entire team back."

While the end of the strike is something to celebrate, no one should assume that it also marks an end to the region's competitive challenges. Boeing's future here hinges on more than simply putting the strike behind them, as analyst Richard Aboulafia points out in today's Times.

Earlier Monday, before news of the contract agreement, respected aerospace analyst Richard Aboulafia predicted the Machinists strike ultimately would drive Boeing from the state.

"Aviation centers are almost impossible to create, but they can easily be destroyed. I think Seattle will be the next to go," Aboulafia wrote in his monthly newsletter. "This strike, following myriad others and with little hope of improved relations, will almost certainly precipitate a (Boeing Commercial Airplanes) exit."

"Almost certainly" does not mean inevitably. But if Washington wants a strong aerospace cluster in its future - and the picture of this state without aerospace is a bleak one - policymakers have to act quickly.

"Bleak Economic News Continues, Underscoring Need for Better Business Climate"

Some Monday mornings are bleaker than others. Nothing says gloom like this Arthur Laffer op-ed in the Wall Street Journal proclaiming "the Age of Prosperity is Over." It's a thoughtful recitation of missteps that he believes have damaged the nation's economy for the forseeable future.  A lot of it has to do with bad decisions made in crisis.

These issues aren't Republican or Democrat, left or right, liberal or conservative. They are simply economics, and wish as you might, bad economics will sink any economy no matter how much they believe this time things are different. They aren't
<snip>
Whenever people make decisions when they are panicked, the consequences are rarely pretty. We are now witnessing the end of prosperity.

That seems unjustifiably bleak, denying both the resilience of the economy and the ingenuity and determination of investors, business owners, and other job creators. Nonetheless, the current economic news underscores the challenges ahead.

Last week, Bill Virgin reported on a Hebert Research survey of Puget Sound area business executives. At best, it's a mixed bag.

...Puget Sound-region chief executives and chief financial officers say business conditions are, for the moment, not that bad...

But ask those same executives what they're expecting for the next 12 months, and far more caution and concern show up in their assessment of local and national business conditions.

In fact, the quarterly business confidence index was the lowest since Hebert began doing the survey in 1990, lower even than the post- 9/11 dip in the regional economy.

The toll on state revenue collections provides too much opportunity to trigger the panic tax-hike response in state capitols that could severely damage chances for recovery. Stateline.org has another useful roundup of fiscal conditions. And the Wall Street Journal shows Washington as an unhappy winner in the biggest loser competition. 

The state reporting the biggest decline in tax revenue was Washington, which had an inflation-adjusted drop of 11.3%.

The major challenge of 2009 will be reigniting economic growth without imposing recovery-killing cost increases on business here.

"Massachusetts Tech Council Gives State Lawmakers an "F""

The Boston Business Journal reports that the Bay State's high tech council gives lawmakers a failing grade. Why does that matter here? Well, for a couple of reasons. Our high tech cluster represents a major growth sector and it's important to keep an eye on the competition. Further, what industry looks for does not vary a great deal from state to state. So, by considering the mistakes made by their counterparts in Massachusetts, our lawmakers can avoid doing similar damage here.

In that spirit, consider the factors considered by the Massachusetts High Technology Council.

"The legislative scorecard is designed to create a better understanding of the technology sector?s priorities on Beacon Hill and to consistently remind legislators that their votes have an impact long after they have been cast," said Council President Christopher R. Anderson.?While there were some positive developments in this legislative session, the MassTrack rankings show some severe backtracking on key areas of economic competitiveness." 

Legislative passage of a nearly $500 million tax hike and an increased healthcare assessment were two issues that hurt the rankings of legislators who supported those measures, according to MassTrack.  Anderson noted some positives from the session, including the passage of the $1 billion Life Sciences investment package and the Green Communities Act. 

Additionally, legislators were afforded the opportunity to self-identify as supporters of the 2008 Unemployment Insurance rate freeze that, if not passed, would have resulted in a $153 million rate hike for Massachusetts employers. The UI rate freeze was a top priority of the Council and was approved by both branches without a roll call vote.

Tax hikes, rising healthcare assessments, and UI costs - sounds pretty similar to the competitiveness threats we're looking at here. Let's work to make sure Olympia does a better job than Boston did.

Initiative 985 Widens State Budget Deficit

That's the conclusion reached by the Washington Research Council in a new policy brief. WashACE doesn't take positions on ballot issues, but I thought readers here would appreciate the Council's thoughtful, objective analysis. The looming $3.2 billion budget shortfall represents a serious competitiveness challenge in the next legislative session. Read the WRC brief to understand how I-985 plays into the budget debate.

Here's the crux.

Redirecting a share of motor vehicle related sales tax from the general fund to the new Reduce Traffic Congestion Account would add about $290 million to the budget shortfall  projected for the general fund in the 2009?11 biennium. 

... Last month, following the release of the  Economic and Revenue Forecast Council?s quarterly
update to the forecast of General Fund revenue, Senate Ways and Means Committee staff projected a $3.2 billion shortfall in the General fund by the end of the 2009-11 biennium. (Fully draining the state?s rainy day fund would reduce the shortfall to $2.4 billion.) Prospects for the economy have darkened significantly in the last month, and the next forecast update will
show a much larger shortfall for 2009?11.

Now is simply not a good time to divert money away from the General Fund.

As they say, read the whole thing.

The Washington Policy Center published a "citizen's guide" to the initiative in August.

Solve Budget Problems without Punishing Economy

In the Herald of Everett today, I look at the budget problems facing our state (and many others) and suggest that how we close the gap will set the stage for the next round of intense interstate economic competition.

Although global competition gets all the press, most business migration occurs between states. Interstate competition will intensify as states seek to rebuild sagging economies. Competitive states want to attract the new investment that creates jobs, stabilizes communities and, not incidentally, supports public services. Washington is already a high-cost state for business. Tax increases would accelerate the economic decline  ...

As a bonus, let me introduce you to a nice business blog I discovered recently, The Entrepreneurial Mind, written by Jeff Cornwall of Belmont University (site of the what's been called "the worst debate ever" - no fault to the school). Here he shares some good tips for small business and public policy.

 

Mixed Signals in Unemployment Report

Today's announcement that the state unemployment rate has dropped from 6 percent to 5.8 percent looks like good news, but there's a dark cloud over the silver lining. A closer read of the report indicates that our economy continues to slump. Although the rate dropped, the state lost jobs.

A large reduction in government jobs contributed to a seasonally adjusted loss of 18,200 nonfarm jobs in Washington in September 2008, down to 2,968,000. The decline comes after a revised gain of 13,900 jobs in July and 1,400 jobs in August.

So how does the unemployment rate decline even as jobs are disappearing. There are several explanations: people may be leaving the workforce faster than the labor market is shedding jobs; and, the data sources are different.

The job numbers are based on a survey of some 7,000 employers, while the unemployment rate is based on a smaller survey of households. Mary Ayala, chief economist for the Washington State Employment Security Department, said the surveys last month presented somewhat differing results, probably due to error rates that are inherent in telephone surveys.

The employer survey is undoubtedly more reliable. The Employment Services Department, which released the data, expects revisions.

... given the recent financial crisis that jolted every sector of the national economy, a revision to the September 5.8 percent is likely to occur. Therefore, the longer term estimates of Washington?s unemployment levels are more informative at this time. Washington?s employment level increased by 1.0 percent year-over-year, while the U.S. realized a loss of 0.7 percent. Similarly, Washington?s unemployment rate continues to lag behind the U.S. rate of 6.1 percent, suggesting that Washington?s economy is in relatively better shape at the moment than the rest of the nation.

Here are some highlights (lowlights?) on the job market. Key sectors continue to shed employment.

• Employment in the goods-producing sector shed another 3,600 (-0.71 percent) jobs in September, after losing 2,800 jobs in August. Among industries that fared better than others, aerospace industries added 200 jobs (+0.23 percent), after remaining unchanged in August, and other food manufacturing gained 200 jobs (+0.81 percent).
  
• The construction sector shed another 2,200 jobs (-1.1 percent) in September, following a series of consecutive monthly job losses that began in January 2008. The cuts primarily affected commercial construction; employment in residential construction exhibited no change from the prior month.
  
• Employment in the manufacturing sector declined by 1,400 jobs (-4.7 percent) in September, with most of the losses (-1,000) concentrated in the manufacture of durable goods.

Despite the drop in the unemployment rate, it's much too early to mark a turnaround.